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Louisiana residents to pay $400 million more in taxes under fiscal cliff deal: revenue department

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The highest-earning Louisiana residents will pay a total of roughly $400 million more as a result of federal tax increases included in the deal that averted the fiscal cliff, according to the state Department of Revenue.
(Photo by Paul Purpura, NOLA.com | The Times-Picayune)

The highest-earning Louisiana residents will pay a total of roughly $400 million more as a result of federal tax increases included in the deal that averted the fiscal cliff, according to the state Department of Revenue. The income tax increase, which will fall almost entirely on the state's highest earners, will also lead to a $20 million decrease in state revenue, because those taxes can be deducted from state income returns.

The analysis was conducted based on Internal Revenue Service data from 2010, the most recent set of data available.

Roughly three-quarters of the estimated increase will come from an increase in taxes on high-income earners, Cruise said. Individual income above $400,000 will now be subject to a tax of 39.6 percent instead of the previous top rate of 35 percent.

Caps on deductions for high-income earners, changes to the alternative minimum tax and increases to the estate tax make up the remainder of the increase, he said.

The department's analysis does not account for the expiration of the payroll tax holiday, which was implemented as a stimulus measure two years ago. The holiday reduced the amount workers pay in Social Security payroll taxes from 6.2 percent to 4.2 percent.

The Tax Policy Center, a nonpartisan Washington, D.C., think tank, estimated that when the increase in payroll taxes are factored in, about 77 percent of U.S. households will pay more in taxes this year.

Because Louisiana is one of a handful of states that allows for full deductibility of federal income taxes, the state will see its revenue decrease by about $20 million as a result of the increased tax rates. Of that, the state will collect roughly $18 million less from those whose income exceeds $1 million and about $2 million less from those who make between $500,000 and $1 million, Baker said.

State economists have already factored in the effect of increased rates into their projections for the state's revenue, so it is unlikely that the increased deductions will add to Louisiana's budget problems.

Jan Moller, director of the liberal Louisiana Budget Project, praised the fiscal cliff deal for protecting the Earned Income Tax Credit, which aids low-income workers. But Moller said the decreased revenue the state will see as a result of the deal highlights the need to put the deductibility of federal income taxes on the table in the upcoming legislative session.

Lawmakers are expected to focus on overhauling the state's tax code during the session that begins April 8.

"This should be front and center during the upcoming tax reform debate," Moller said. "Louisiana's state tax base shouldn't be subject to the vagaries of the federal tax debate and we shouldn't be subsidizing a federal tax increase."